Starbucks Stock Fails at Fresh All-Time Highs

by Serge Berger | October 9, 2013 8:56 am

Coffee retail giant Starbucks (SBUX[1]) has been a dream stock for many a trend follower since the 2009 lows, with the exception of April-October 2012. Off the 2009 lows up to Tuesday’s fresh all-time highs, Starbucks stock has improved roughly 900%, leaving many a bear holding empty pockets along the way.

As it often goes, momentum and cult stocks — even more so if they have a profitable business behind them — can push higher for longer and with more momentum than any bear can remain solvent. Of course, the trick to jumping on the the momentum stock bandwagon without getting shaken out at the first minor bump in the road is to have a number of clear support levels marked and constantly updated on the charts.

If we consider the multiyear chart of Starbucks stock looking back to the 2009 lows, the first obvious line of support is the steep 2009 uptrend line, which currently comes in around the low $70s. A next possible support level for SBUX would be closer to the low $60s, which would coincide with the April 2012 reaction highs as well as a 50% retracement of the entire rally off the October 2012 lows.

That’s the bigger-picture view. Now let’s see what levels we can circle on the closer-up daily charts of SBUX, where traders with nearer-term time-horizons operate.

Tuesday’s failed intraday breakout past a multiweek consolidation zone reversed hard, closed at the day’s very lows and in doing so left a bearish outside day behind on Starbucks’ daily chart. Risk happens fast, as they say, and what looked like it could be yet another great launching point for Starbucks stock ended up being a fake-out breakout.

From here, SBUX has first next support at lateral support, which coincides with the 50-day moving average and both its November 2012 and 2009 uptrend, currently near $74.

After Tuesday’s reversal, Starbucks stock is waving a first red flag, so buying at this point makes little sense. My opinion: Better odds will arrive once SBUX has showed that it can hold the 2009 uptrend line.

Serge Berger is the head trader and investment strategist for The Steady Trader[2]. Sign up for hisfree Weekly Market Outlook Video here[3]. As of this writing, he did not hold a position in any of the aforementioned securities.